Offshore Financial Arrangements Including Micro-captives Still On Watch List

Most micro-captives are a legitimate way to offshore the self-insurance of Workers Compensation benefits. The IRS released its list of the Dirty Dozen for 2018 a few months ago. Offshore financial arrangements filled the #12 of 12 spots.

Public Use License – Library of Congress

Micro-captives, better known as 831(b) Captives were unfortunately heavily abused for many years. In fact some of the owners issued themselves debit cards to draw the money out tax-free. Such tax abuses immediately caught the watchful eye of the IRS. I learned of such abuses at a previous CICA Conference in Orlando.

The maximum amount limit on 831 (b) Insurance Captives was lifted to $2.3 million for 2018. Could an offshore micro-captive provide enough protected capital to finance the handling of a group of Workers Compensation claims? Yes, the program would be viable. However, $2.3 million can easily be expended with just a few claims.

Aggregate reinsurance would be needed if the claim payouts reached the $2.3 million maximum. Some micro-captives have even re-insured themselves with another micro-captive. One has to be careful when stacking one captive on top of another to re-insure of the captives.

Please see the list of the IRS’s Dirty Dozen for 2018 below:

Phishing

Phone Scams

Identity Theft

Return Preparer Fraud

Fake Charities

Inflated Refund Claims

Excessive Claims for Business Credits

Falsely Padding Deductions on Returns

Falsifying Income to Claim Credits

Frivolous Tax Arguments

Abusive Tax Shelters

Offshore Tax Avoidance: Successful enforcement actions against offshore cheating show it’s a bad bet to hide money and income offshore. People involved in offshore tax avoidance are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. IR-2018-64)

An excerpt from the above link is below:

Hiding Income Offshore

commons.wikimedia.org BY-SA 2.0 Flicker.com

Over the years, numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. They then access the funds using debit cards, credit cards or wire transfers. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as bankers and others suspected of helping clients hide their assets overseas.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward to voluntarily disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations.

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The above passages should not discourage any legitimate Workers Compensation Micro-captive from being formed and used to cover claims. Recently, Congress even redefined some of the 831 (b) captive arrangement rules to remove any ambiguities.

Most offshore domiciles/jurisdictions want you to input at least $250,000 upfront to begin a micro-captive. One large differentiation among the domiciles is the expenses charged to set up an 831 (b) captive.

Please note that I am not referring to onshore domiciles.

I do not tout myself as a captive expert. However, I have facilitated the runoff claims for two failed captives over the last few years. From the claims end, I have learned what to and not to do with the financing and claims handling.

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About Me

James J Moore
Raleigh, NC, United States

James founded a Workers' Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L's mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers' Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James's educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.